Get Used To a Bipolar Economy

The up-and-down recovery is becoming a chronic condition.

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Just a few months ago, we were gloomy all the time. It was easier that way.

Now we’re enduring frequent mood swings as the economy teases us with recovery, then smacks down our hopes. There was a bout of euphoria when we learned that the economy grew 3.5 percent in the third quarter, the first period in more than a year when GDP didn’t shrink. Growth was greater than expected, even on par with what you’d see in a normal, healthy economy. Yay! Life is good!

Except that life obviously is not good. That economic growth spurt was due to a lot of federal fertilizer, like subsidies for cars and homes and other spending by a government that seems hell-bent on bankruptcy. That spending can’t continue, and without it, growth would have been pretty lame.

[See 9 signs of America in decline.]

At least exports were up, so maybe we should be happy about that. But exports rose mainly because the dollar is weak, and that’s because foreigners don’t want to invest in the United States like they used to. So maybe a rise in exports is really bad news in disguise. I’m not feeling so happy about that after all.

But here’s something that makes me feel better: Big companies have been racking up impressive profits that are much higher than analysts expected. Three cheers for corporate America!

Huh? You mean they’re doing this without selling more stuff or hiring more workers? They’re actually still laying off workers? And that’s why they’re earning more money? Rats. Let’s just make it one cheer, then.

[See why stocks are surging as jobs disappear.]

At least investors are optimistic. Look at that stock market! Up 50 percent since it bottomed out in March! That ought to keep going until…. Ahh, I see. So if laid-off workers don’t start finding jobs and spending money, the stock prices of the companies that have laid them off will stop rising and start falling? And investors will turn sour as stocks start to slide all over again? Ahem.

Gee, I’m not sure what to think. And most Americans feel the same way. Consumer confidence plunged from late last year to early this year, as companies capsized, the stock market crashed and pink slips flew like confetti. That made sense. Everybody was gloomy and for good reason: Their moods matched conditions in the real economy.

[See 10 products that boomed during the recession.]

Confidence improved in April and May, as the bloodletting at companies seemed to subside. Then confidence took a summer hiatus in June and July, as people began to realize this recovery thing might take awhile. Consumers perked up again in August and September, as cash-for-clunkers, falling home prices and the home-buyer tax credit convinced them to try some shopping therapy, which always boosts the spirits. But the buzz wore off in October, and now we’re back to a recession mindset.

People by nature prefer clarity over ambiguity, but we should get used to this bipolar economy, because it’s likely to become a chronic condition. Odds are the strong third-quarter GDP numbers were an anomaly, and future growth will be more of a downer than a stimulant; the Congressional Budget Office, for example, predicts GDP growth will be an anemic 2.9 percent in 2010, with weaker performance at the start of the year than at the end. White House economist Christina Romer said recently that the awful job situation would probably last for another year, without much improvement. And we’re going to have to give up our meds at some point: There’s little appetite for more bailouts or stimulus plans from a benefactor that will need its own bailout before long.

[See 5 myths about the economic “recovery.”]

But there will be episodes of euphoria in the near future, too: Moments when the stock market seems poised for another tear, excited rumors about the housing market finally bottoming out, and other signs that we’re tipping into a new era of prosperity. Go ahead, believe it. A counterargument will intrude soon enough.